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2017-04-13 23:18:02
Bank Lending Stalls on Doubts About Trump’s Pro-Growth Agenda

Many business owners and corporate executives have expressed unbridled optimism that President Trump can fuel economic growth and increase their profits.

Their borrowing habits, however, may tell a different story.

Some of the nation’s top bankers said on Thursday that businesses were feeling less certain that Mr. Trump can pull off his ambitious agenda to deregulate and cut taxes.

Many industries, the bank executives said, are increasingly cautious about taking on too much new debt, particularly after efforts to replace the Affordable Care Act failed last month, raising doubts about whether the president can get pro-business measures like tax cuts through Congress. And such political uncertainty comes at a time when the Federal Reserve has embarked on raising interest rates, which will make borrowing costlier.

“They all want to believe that there is more growth ahead, but they need to see something out there before they act,” John Shrewsberry, the chief financial officer of Wells Fargo, said in an interview.

Wells Fargo, a leading lender to American consumers and businesses, said its outstanding loans in the first quarter had increased just 1 percent from a year earlier.

Citigroup, which has a large global presence operating in dozens of countries, said its lending growth wasn’t that much larger, with overall loans rising 2 percent.

Earnings reports on Thursday from three of the nation’s biggest banks — Wells Fargo, Citigroup and JPMorgan Chase — offered the latest indications that corporate America and Wall Street were giving a more sober assessment to the feasibility of the growth-focused Trump agenda.

The results followed recent signs that lending has been slowing, and in some cases declining more broadly in the banking industry. Data from the Federal Reserve showed that lending in February was flat, while lending to manufacturers and energy companies was in decline, after many months of growth.

“If this continues, it is definitely concerning,” said Leo Mourelatos, a United States country risk analyst with BMI Research. “It would signal that the U.S. economy is much weaker than the current consensus.”

Yet the banking data may be sending out some mixed signals.

Some economists said the lending decline reflected in the Federal Reserve data — particularly commercial and industrial loans — was driven not by any broad weakness or lack of confidence but by a decrease in energy lending because of low oil prices.

Another factor was the paring of business inventories. Businesses typically borrow from banks to purchase inventories of goods and parts. With smaller inventories, businesses need fewer loans.

Bank loans are also not the only way that companies can borrow. Large corporations in particular have also been able to tap the bond market for financing, which may also be taking a share from bank lending.

Executives at the nation’s largest bank, JPMorgan Chase, played down concerns about slowing loan growth, noting that its loans had risen 6 percent from a year ago.

“U.S. consumers and businesses are healthy over all and with pro-growth initiatives and improving collaboration between government and business, the U.S. economy can continue to improve,” said the bank’s chief executive, Jamie Dimon.

On a conference call with analysts on Thursday, Mr. Dimon said: “I wouldn’t overreact to the short-term thing about loan growth.”

He added that it took time for a new administration to push through an agenda and counseled patience. “To expect it to be to be smooth sailing would just be silly,” Mr. Dimon said.

It was just such optimistic expectations that helped drive a powerful rally in the stock market after Mr. Trump’s election. Recently, stock prices have been weaker as investors have grown a bit more pessimistic. The benchmark Standard & Poor’s 500 index fell 0.68 percent on Thursday, led by energy and financial shares. For the holiday-shortened week, the index closed down 1.1. percent.

Mr. Shrewsberry of Wells Fargo noted that the optimism about a pro-growth agenda had buoyed the spirits of business community after the election and into February.

But after the health care overhaul failed, he noted a change. “There is more waiting and seeing going on,” he said.

Citigroup’s chief financial officer, John Gerspach, also said businesses might be looking for more certainty from Washington before ramping up their borrowing.

“We haven’t seen concrete changes yet in policies,” Mr. Gerspach said in a conference call with reporters on Thursday.

The banks themselves are also waiting to see whether President Trump delivers on his promise to roll back the 2010 Dodd-Frank Act, a financial regulatory overhaul passed in the wake of the financial crisis that has required banks to hold increasingly more capital and restrict certain types of trading.

At the same time, the Trump administration has thrown the banking industry a curveball by raising the possibility of restoring a version of the Glass-Steagall Act of 1933, which required banks to separate their commercial and investment banking activities. The idea also has the support of liberals like Senator Elizabeth Warren, the Massachusetts Democrat and one of Wall Street’s toughest critics.

The Glass-Steagall law was repealed in 1999, paving the way for the creation of sprawling mega-banks like Citigroup and JPMorgan Chase.

Big banks have argued that the current model — in which banks fund their investment banking activity with customers’ deposits — has helped provide credit to companies and consumers across the world. It is at the core of the large bank’s profits, giving them a big advantage over smaller competitors.

Efforts to bring back Glass-Steagall — which would effectively break up the big banks — has left the industry slightly perplexed.

“I would have to wonder how that would be consistent with deregulation or boosting growth, which is the goal of this administration,” Mr. Gerspach, the Citigroup chief financial officer, said on Thursday.